Case Analysis

www.hbr.org

H B R C

A S E

S

T U D Y

Holding Fast

by John T. Gourville

•

Should Crescordia launch a resorbables offering?

Reprint R0506X

H B R C

A S E

S

T U D Y

Holding Fast

by John T. Gourville

harvard business review • june 2005 page 1

HBR’s cases, which are fictional, present common managerial dilemmas.

C O

P Y

R IG

H T

© 2

0 0 5 H

A R

V A

R D

B U

S IN

E S

S S

C H

O O

L P

U B

L IS

H IN

G C

O R

P O

R A

T IO

N . A

L L

R IG

H T

S R

E S

E R

V E

D .

Crescordia’s products are respected the world over. Now, rivals have

launched a radical—albeit still buggy—new technology. Can the

company afford to sit out the revolution?

“Now remember, with every blow of the ham- mer, you’ve got to feel the femoral nail advanc- ing through the bone. If you don’t, then for heaven’s sake, stop. It might be impinging on the cortex or it might be too large for the canal. Keep whacking, and you’ll fracture the cortex.” The trainer’s calm, authoritative voice boomed out across the room as a dozen orthopedic sur- geons toiled away on the cadaver limbs laid out before them. Pausing to observe the technique of one of the surgeons, he glanced up to see his boss, CEO Peter Walsh, crack open the door and squeeze through, trying his best to be un- obtrusive. The trainer glanced at the clock. “Okay, let’s save some of this fun for the after- noon,” he called out. “We’ll meet in the lobby in ten minutes and walk over to lunch.”

In addition to making a range of products from artificial hips to scalpels, Crescordia was one of a handful of major companies that devel- oped, manufactured, and sold the steel and tita-

nium plates, nails, and screws—known as fixa- tion devices—that surgeons used to repair broken bones. At least twice a month, Crescor- dia hosted training sessions like this one for or- thopedic surgeons who used the company’s products. Walsh joined the group for lunch as often as possible. It was a great opportunity to connect with the physicians and hear firsthand what they liked and didn’t like about Crescor- dia’s products. Besides, he just plain enjoyed their company. Trauma surgeons tended to be brilliant but down to earth. With their ham- mers, saws, and drills, they were as much car- penters as they were doctors. Maybe because so many of the cases they saw were the result of bad luck, they had a certain perspective on the world. They tended to joke a lot when they got together, and if you could tolerate some morbid humor you found yourself laughing along.

After the air-conditioned chill and formalde- hyde odor of the lab, the heat of the summer

Holding Fast

•

•

•

HBR C

ASE

S

TUDY

harvard business review • june 2005 page 2

John T. Gourville

([email protected]) is an associate professor of marketing at Harvard Business School in Boston and a coauthor, with John A. Quelch and V. Kasturi Rangan, of

Problems and Cases in Health Care Marketing

(McGraw-Hill/Irwin, 2005). His last arti- cle for HBR was “Pricing and the Psy- chology of Consumption,” coauthored with Dilip Soman (September 2002).

day was a welcome change. Strolling along the paved path to the cafeteria, one of the sur- geons launched into an account of a difficult case he’d seen that week. “Get this: The guy’s a conductor—you know, with a symphony or- chestra—so he really needs that wrist action.” The surgeon flicked an imaginary baton up- ward by way of illustration. “So, of course, what does he manage to break his very first time on Rollerblades?” Walsh winced in sym- pathy. “On top of that, it’s the same wrist he fractured five years ago, falling off his po- dium—and it was fixed that time with a distal radius plate.” The rest of the group made sym- pathetic noises; no one liked having to remove old plates to implant new ones. “But wait—it gets worse. He’s from Europe, just came here last year. And his surgeon must have fancied himself on the leading edge, because that plate was resorbable. Or, shall we say, it was

sup- posed

to be.” Now a great groan went up from the group,

to the clear satisfaction of the surgeon. Every- one had a mental image of what he must have encountered, and it wasn’t pretty. The idea be- hind resorbable hardware was a good one. Like dissolving sutures, resorbable plates and screws were made of biodegradable polymers that held up long enough to do their job—to sup- port a healing bone—then gradually disinte- grated harmlessly into the patient’s body. The first and second generations of the technology were far from perfect, though, as the surgeon’s case and many like it made clear. After five years, there should have been nothing left of the plate in the conductor’s wrist—the key words being “should have.”

“Let me guess,” another doctor chimed in. “It looked like the hull of the

Titanic

in there.” He sighed and shook his head. “And who knows if the resorbables on the market today are any better?” Walsh stiffened slightly and cleared his throat, anticipating what would come next.

Sure enough, someone posed the question right away. “So, when is Crescordia going to make a resorbable fixation system? You guys would do it right. Finally, I’d have the confi- dence to use the darn things on a regular basis.”

Everyone looked at Walsh, but his response was as noncommittal as ever. “I wish we could give it to you today. But believe me, the science just isn’t there yet. There’s a reason those prod- ucts are so buggy. And we wouldn’t waste your

time selling them to you. Our reputation—and yours—means too much to us.”

Walsh then adroitly shifted the topic to what Crescordia would introduce next, and the conversation moved on. He relaxed again when they arrived at the bustling cafeteria and he could play host, offering pointers on what the various stations had to offer. As the train- ees reconvened at the dining tables, Walsh sized up his seating options. Taking care not to spill his soup, he squeezed past a table with a group debating World Series prospects and joined a couple of surgeons who were obvi- ously talking shop. One of them was using his turkey roll-up to describe a femur fracture he’d recently fixed. “So right here’s where the blade plate had to go in,” he was saying as he pressed a plastic knife through the pita. The fellow be- side him interrupted. “And we’re in a lateral position, right?”

“Yeah, yeah. Need to get the posterior expo- sure for this one.” The surgeon guided the blunt plastic point expertly past a layer of Ha- varti and flicked at some shredded lettuce. “And the question is, Are these fragments here going to take to lag-screw fixation? Because, if so, that’ll save me a lot of work.” He studied his subject intently for a moment, then shoved it into his mouth.

Walsh laughed. “So much for that case!” he said. He wished he could eat with these guys every day.

Fixated on Quality

Later, in his office, Walsh returned to the chal- lenge of resorbables. There was no question they would be great if they were reliable—and indeed Crescordia, along with many of its competitors, had been working on that prob- lem for years. But were they ready for prime time? During internal trials, they still tended to fail about 8% of the time—sometimes disin- tegrating before the bone had fully healed and sometimes not fully disintegrating at all. Not exactly Six Sigma.

Unfortunately, not every company was so fussy. Walsh remembered the day back in the 1990s when he was stunned to find out that In- nostat, an upstart competitor, was ready to launch a line of resorbable plates and screws. Walsh was confident he had the best scientists and R&D facilities in the business; could some geniuses have beaten them to the punch? Soon enough, the truth became clear, though

Holding Fast

•

•

•

HBR C

ASE

S

TUDY

harvard business review • june 2005 page 3

it was only a partial relief: The product was even worse than what Crescordia could have put on the market at the time. Walsh made a strategic decision not to enter the fray and in- stead channeled resources into developing next-generation steel and titanium hardware. As the resorbables failed to deliver on their promise, Crescordia’s market share and reputa- tion grew.

But orthopedic surgeons, who’d been hear- ing for years that resorbables were right around the corner, were eager to use them. Some especially looked forward to using re- sorbables on children, so the kids wouldn’t have to undergo a second operation for re- moval of the hardware after the bones healed, a common procedure in pediatrics. In patients of all ages, old plates and screws could some- times shift or come loose, causing painful pro- trusions. Just enough of the current generation of resorbables worked, it seemed, to keep In- nostat in business and everyone else in the in- dustry continuing their research. Even Walsh had to admit that, were he a surgeon, he might occasionally take the risk of using a resorbable.

But Walsh wasn’t a surgeon. He was the CEO of a company whose products were re- spected throughout the industry. Thanks to de- cades of refusing to compromise on quality, there were orthopedic surgeons out there who used nothing but Crescordia hardware. The company simply could not afford to do some- thing and not do it right.

Under Stress

Walsh arrived at his office the next morning to a typical flurry of meetings, conference calls, and paperwork. It was ten o’clock before he found a chance to pop down to see Gary Mis- kimen, his head of R&D. Miskimen was in the testing lab at the moment, his assistant told Walsh. She offered to page him.

“No, no,” Walsh said. “I’m heading that way anyway.” Soon after, he found Miskimen and one of his managers, both in pristine lab coats, looking on as a technician operated one of the company’s servohydraulic fatigue testing ma- chines. The technician clamped a long, slender, metal screw into place, picked up her strain gauge and started the test.

Miskimen filled Walsh in, murmuring, “The new cannulated screw versus the standard cor- tex screw.” They stood staring, scarcely breath- ing, as the tension built and built more. Finally,

the screw snapped. Miskimen’s eyebrows rose. “Not bad,” he said. The technician grinned.

Miskimen turned to Walsh and gave him a proper greeting. “And what brings you down to the lab on this fine day?”

“Actually, I was just curious to know if there was any news on the resorbables front,” Walsh answered. “I know we’re not due for a status update, but the subject came up yesterday.”

Miskimen looked to the manager beside him. “We just finished some trials on the latest prototypes, didn’t we?” The manager hurried off to get the data.

“Don’t get your hopes up,” Miskimen said, as he and Walsh followed at a more measured pace. “It’s not perfection.” They walked along in silence for a few moments. Then Walsh spoke up.

“I think it may be time to step up our ef- forts. Let’s say we delay those new compression plates and put Wilkins on the case and maybe Sid Stratton…” Walsh glanced at Miskimen for a reaction.

Miskimen rubbed his close-cropped beard, then shook his head. “Peter, the truth is we’ve done as much as we can with resorbables in the lab. I know you don’t want to hear this, but we’re not going to know what we need to know to make the product better until we get it out in the field. We need to get it into the surgeons’ hands.”

“And into the patients’ bodies,” Walsh said with a sigh. Miskimen was right; it wasn’t what Walsh wanted to hear. But Walsh knew enough about the science to know Miskimen wasn’t just making excuses. Metal plates were relatively straightforward to test. They were in- ert, nonreactive with body tissue, so what you saw in the lab was what you’d get in the human body. The whole point of resorbables, on the other hand, was to be reactive—to in- teract with the body and dissolve over time. But every body was different and it wasn’t pos- sible to replicate every individual’s physiology in the lab.

The Governing Body

A week later, as Walsh approached the board- room door for the executive committee meet- ing, the atmosphere seemed charged. Every- one had a strong opinion on the main topic the committee would be discussing today.

Probably most excited to see resorbables back on the agenda was Jane LaMott, vice pres-

“Believe me, there’s a

reason those products are

so buggy. And we

wouldn’t waste your time

selling them to you. Our

reputation—and yours—

means too much to us.”

Holding Fast

•

•

•

HBR C

ASE

S

TUDY

harvard business review • june 2005 page 4

ident of sales. Walsh noted how antsy she seemed during Miskimen’s R&D update and, as soon as Miskimen finished, gave her the nod to lead off the discussion.

“In the past few months, three of our top- tier accounts have placed substantial orders with Innostat,” she said ominously. “And here’s the kicker: They weren’t just for resorbables. They included metal devices directly equiva- lent to ones that we sell.” She went on to offer her analysis. These were surgeons who were doing some experimentation with resorbables, which they couldn’t procure from Crescordia. “And once they turned to Innostat for resorb- ables—well, the camel’s nose was under the tent.”

Walsh leaned forward in his chair. “That’s an important point, Jane. Having a resorbables option, even if limited, might prevent market share erosion in other areas.”

Chief marketer Diane Robinson took her cue. “I couldn’t disagree more,” she said. “Our market share is a function of our reputation for quality. If we put out a product that isn’t up to our standards, will people trust us with the rest of the product line?” She gave LaMott a conciliatory look. “Perhaps if we could move into this new technology in a very limited way—”

“Can’t do it,” Rob Bond piped up. As chief operating officer, he was acutely aware of the complexity of a new platform launch. “If we enter the market at all, we’ll need to do it with the full set of implants—plates and screws in all relevant sizes—plus the hand and power tools to attach these implants.” He nodded in LaMott’s direction. “And you’ll need an education offering to support them. And none of it has a chance of profitability if we can’t scale production.” That sent the group into a discussion of the retooling and inventory levels required, which quickly de- volved into side debates.

“One conversation, folks,” Walsh reminded them, then noticed that Miskimen was waiting patiently for the floor. He invited him to speak his mind.

“What about targeting just the pediatric market for a start?” Miskimen suggested. “It’s a smaller range of sizes, and, from my perspec- tive, it offers the greatest potential benefit to doctors and patients.”

LaMott looked at Miskimen gratefully. “Not to mention the biggest source of demand,” she

said. “If there is one thing surgeons hate to do, it’s to go back in on a kid to remove an im- plant. They get no credit if it goes right and a huge headache if it goes wrong. That’s a terrific idea.”

Up to this point, legal counsel Sam Maddox had hung back, observing the back-and-forth with an air of detachment. Now he made a face as though he were smelling sulfur. “Let me get this straight,” he drawled. “We have a prod- uct that is probably substandard. We’re expect- ing it to get better based on what we learn in the field. And our human guinea pigs are…children? Sounds like a field day for tort lawyers. Can’t we try it out on old people or something?” He frowned thoughtfully. “Then again, I’m not sure I want my mother suing us, either.”

What’s In It for Us?

Walsh was glad he’d put the item on the agenda, even though the discussion was far from conclusive. The group tabled the resorb- ables debate until the next meeting, with vari- ous people promising to scare up relevant data.

The next day, however, Walsh had a morn- ing of work scheduled with CFO Calvin West- brook, and it struck him that Westbrook hadn’t weighed in.

“I don’t know, Peter,” Westbrook admitted. “I’m no expert, but at this point I question the whole resorbables idea. Scientists have been promising us results for 20 years, and what do we have to show for it? It reminds me of that joke about Brazil: It’s the country of the fu- ture—and always will be.”

Walsh smiled. “But I think we’re getting close. What if the market does materialize? It will be very fertile for whoever gets it right. I want Crescordia to be the one to make that happen.”

“Well, there again, I’m not so sure,” West- brook said. “I was thinking about this last night. Let’s assume the very best scenario— that we are the ones to get it right. Our resorb- able implants succeed in the field and become the product of choice. Then, everyone re- sponds and we see a gradual shift to the new technology. As I see it, we may be no better off.”

“How’s that?” Walsh asked. “The margins will be only slightly better.

But the retooling needed to make resorbables

“If there is one thing

surgeons hate to do, it’s to

go back in on a kid to

remove an implant. They

get no credit if it goes

right and a huge

headache if it goes

wrong.”

Holding Fast

•

•

•

HBR C

ASE

S

TUDY

harvard business review • june 2005 page 5

will be a huge capital expense.” He sat for a few moments silently, letting Walsh ponder the point.

Walsh raised his head finally and stared at his colleague intently. “I get what you’re say- ing,” he said. “With the rest of the industry making no headway, why be in a hurry?”

“Exactly,” said Westbrook. “Why usher out a golden era?”

Should Crescordia launch a resorbables

offering?

Reprint R0506X

To order, call 800-988-0886 0r 617-783-7500 or go to www.hbr.org